Negative Credit Habits (And How to Break Them)

No one consciously decides to accrue massive amounts of debt, but negligent money habits and irresponsible spending can lead you down a slippery slope of relying on borrowed money to stay afloat. If you’re worried that your current money habits might be setting you up to fail later on, read our list of negative credit spending habits so you can do your best to correct them as quickly as possible.

Don’t Get Complacent with Your Credit Cards:

It’s incredibly easy to get access to money that isn’t actually yours. The key is to remember that you’re merely borrowing it from someone else and that you will have to pay it back (usually with interest).

The second you start treating your credit card like it’s free money, you lose perspective of how much money you actually have versus how much you’ve borrowed.

Don’t Rely on Overdraft to Save You:

Overdraft can be an excellent safety net, but that’s all it should be – an extra measure of security to protect you should you spend more than you actually have available in your account.

If you’re dipping into overdraft every month then you need to reevaluate your spending habits because chances are you’re spending beyond your means. This can set a dangerous precedent and is one of the easiest ways you can sink your finances and perpetuate future negative credit.

Don’t Spend Money you haven’t Earned Yet:

If you don’t know where the money will come from to pay for whatever you’re about to buy – do not buy it. Spending money you haven’t actually earned yet (or that you can’t guarantee will be given to you in a timely manner) can lead to a cycle of debt in which you’re always looking backwards and trying to get caught up on old debt.

Not Having Some Emergency Money Stashed Away:

You never know what kind of unexpected situation you might find yourself in; whether it’s car trouble, damage to your home not covered by insurance, a medical problem, a job loss, or even your child’s university or college tuition shooting up from one year to the next, everyone should have an emergency fund saved up.

The ideal amount to have put away is about 3 month’s worth of your current salary. That’s not always likely (or even feasible) for everyone but you should do your best to at least put away enough money to take care of any immediate emergency situations that may arise.

Be Careful Who you Trust your Credit Card With:

If you absolutely must lend someone your credit card, make  sure you can trust them and hold them accountable if something goes wrong. It’s not uncommon to lend your partner or other family members you credit card but you should still check that they understand the responsibility involved with handling someone else’s finances (the last thing you want is to make your negative credit situation even worse).

Do not Cosign Someone Else’s Loan:

This is not a hard and fast rule because, like in the situation above, there are times when it can be a good idea to co-sign a loan with a family member or trusted close friend. The key is to be very, very shrewd about who you’re signing with and how likely or unlikely they are to flake on their payments (leaving you accountable for the remaining balance).

Know the Difference between a ‘Want’ and a ‘Need’:

If you need something, you’ll know and have no other choice but to attain it. If it’s really just a matter of want, then you’ll feel uncertain about making the purchase. Force yourself to use the 24 hour rule and sleep on it before making any decisions. If you feel strongly about purchasing it a day later, then at least you know you’ve really thought about it and have come to that conclusion with a clear mind.

Never Make Just the Minimum Payment each Month:

Merely paying the minimum payment on your credit card each month guarantees that you’ll sink into debt and stay there for a very, very long time. The more interest that accrues on your balance, the more money you owe your bank (on top of the original cost of whatever you purchased).

Do yourself a favour and pay off as much of your balance as you can each month (if not the entire thing). Frame it to yourself like this – the longer it takes you to pay off your balance, the more free money you’ve given your bank for nothing in return. Breaking negative credit habits might not be easy, but it’ll absolutely be worth it in the long run.

If you still feel like you need extra help rectifying your negative credit habits, you can fill out our online application here.

What are some of your worst credit habits?  Let us know in the comments.